Rosneft, Novatek plan to challenge Gazprom's domestic market share

Rosneft currently produces 41 billion cubic metres of gas annually, and Novatek produces 18.5 billion more. Rosneft projects its production at 100 billion cubic metres by 2020, and Novatek's projections for itself by that time are only 10 billion behind.

The "Sakhalin-3" project is one of the main sources of gas supply to Russia's Far East. Source: Gazprom

Rosneft is
planning to produce 100 billion cubic metres of natural gas annually by 2020,
the company’s President, Igor Sechin, announced at the Investor Day event in London. Last year, Rosneft
produced 41 billion cubic metres of gas (10 percent of market share).

According to a
presentation made by Vlada Rusakova, head of gas business at Rosneft, current
projections would put Rosneft at 19 percent - 22 percent market share by 2020.

The company has already contracted half of its
projected output increase; it has a portfolio of orders for 72 billion cubic
metres of gas annually. While the presentation did not mention the starting
dates of the contracts, it did say gas supplies to the domestic market would
reach 63 billion cubic metres by 2016.

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In 2020, power
utilities will account for 60 percent of the deliveries, Itera Group customers will
account for 16 percent (Rosneft holds a 51 percent stake in one of its subsidiaries, NGK
Itera) and chemical companies will account for 14 percent.

Current projects will
produce just under half of Rosneft’s planned output, at 47 billion cubic
metres, with the rest provided by new projects, such as the Kharampurskoye
deposit, Rospan International, the Kynsko-Chesalskaya Group and Sakhalin-3.

Gazprom supplied 304.9 billion cubic metres of
gas last year to Russian customers and currently accounts for 73 percent of all
domestic deliveries.

This year the company will see almost 40 percent of its domestic
gas supply contracts expire, and many customers are not planning to renew them.
UBS Analyst, Maksim Moshkov, says Rosneft will be able to double its market
share if Gazprom continues losing its own.

The analyst
expects a 25 percent increase in domestic demand by 2020. Gazprom's share of the
domestic market could drop to 60–70 percent by 2020. A Gazprom spokesman is not concerned.
"Our share will decrease as the market keeps growing," he said.

“Market growth has already started
slowing down: there’s a demand potential in power utilities, but even according
to the best-case scenario, the Russian market will be consuming a maximum of
450–470 billion cubic metres of natural gas annually by 2020,” he said.

A source at
Gazprom was confident that even with TNK-BP and Itera’s assets taken into
account, Rosneft will only be able to produce 70–75 billion cubic metres of gas
by 2020.

Novatek is
another company vying for control of the market, and currently produces 18.5
billion more cubic metres of gas than Rosneft. By comparison, Novatek also
expects a lower increase in production by 2020 – 90 billion cubic metres of
gas.

Nesterov added that Rosneft is betting on the Kharampurskoye field, where
gas deposits are considered hard to recover. If competition intensifies, he
believes Novatek stands a better chance of expanding its market share.